Judge: Randy Rhodes, Case: 22CHCV00448, Date: 2023-04-14 Tentative Ruling

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Case Number: 22CHCV00448    Hearing Date: April 14, 2023    Dept: F51

Dept. F-51

Date: 4/14/23

Case #22CHCV00448

MOTION TO COMPEL ARBITRATION

Motion filed: 2/2/23

MOVING PARTY: Defendant Nissan North America, Inc. (“Defendant”)

RESPONDING PARTY: Plaintiff Natalie Soto (“Plaintiff”)

NOTICE: ok 

RELIEF REQUESTED: An order: (1) compelling Plaintiff to submit her claims to arbitration; and (2) staying this action pending the outcome of the arbitration.

TENTATIVE RULING: The motion is denied. Defendants’ request for judicial notice is denied.

BACKGROUND

Plaintiff brings this action under the Song-Beverly Consumer Warranty Act (Civil Code § 1790 et seq.) for a vehicle she purchased on or around 3/7/20, for which Defendant issued the manufacturer’s express warranty. Plaintiff alleges that Defendant “was unable to repair the vehicle in accordance with the written warranty or the consumer protection and warranty laws of the State of California.” (Compl. ¶ 4.) Plaintiff further alleges that Defendant had actual knowledge of a defect in the vehicle model’s emergency braking system, and “knowingly marketed and sold/leased vehicles with the Emergency Braking Defect, while willfully concealing the true risks posed by the Emergency Braking Systems.” (Id. at ¶ 45.)

On 6/16/22, Plaintiff filed her complaint, alleging against Defendant the following causes of action: (1) Violation of Song-Beverly Act – Breach of Express Warranty; (2) Fraudulent Inducement – Intentional Misrepresentation; and (3) Fraudulent Inducement – Concealment. On 7/22/22, Defendant filed its answer.

On 2/2/23, Defendant filed the instant motion to compel arbitration and request for judicial notice. On 4/3/23, Plaintiff filed her opposition. On 4/7/23, Defendant filed its reply.

ANALYSIS

Under both the Federal Arbitration Act and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.)

The party moving to compel arbitration must establish the existence of a written arbitration agreement between the parties. (Code of Civ. Proc. § 1281.2.) This is usually done by presenting a copy of the signed, written agreement to the court. “A petition to compel arbitration or to stay proceedings pursuant to Code of Civil Procedure sections 1281.2 and 1281.4 must state, in addition to other required allegations, the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference.” (Cal. Rules of Court, rule 3.1330.)

The moving party must also establish the other party’s refusal to arbitrate the controversy. (Code of Civ. Proc. § 1281.2.) The filing of a lawsuit against the moving party for a controversy clearly within the scope of the arbitration agreement affirmatively establishes the other party’s refusal to arbitrate the controversy. (Hyundai Amco America, Inc. v. S3H, Inc. (2014) 232 Cal.App.4th 572, 577.)

Here, the issue presented is whether Defendant, as the nonsignatory manufacturer of the subject vehicle, may invoke the arbitration provision in a contract of sale entered into between Plaintiff and the dealership, a nonparty to the instant action.

A.    Retail Installment Sales Contract

Here, the parties do not dispute the existence of a written agreement containing an arbitration provision. The subject contract of sale (the “RISC”) itself, a copy of which Defendants have attached to their moving papers, provides the terms for the financing of the vehicle purchase, and includes an arbitration clause at the end of the agreement.

The arbitration provision in the RISC provides, in relevant part: “Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to your … purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign the contract) shall, at your or our election, be resolved by neutral, binding arbitration and not court action.” (Ex. C to Declaration of Hang Alexandro Do, p. 5 [emphasis added].)

Defendant asserts that all of Plaintiff’s claims fall within the scope of the arbitration clause contained in the RISC, and “at their core, Plaintiff’s warranty and fraud claims arise from and relate to these types of disputes.” (Def.’s Mot. 12:6–7.) Here, Plaintiff alleges, inter alia, that her “cause(s) of action for violations of the Song-Beverly Act arise from warranty obligations of NISSAN in connection with a vehicle purchased by Plaintiff(s) and for which NISSAN issued written warranties.” (Compl. ¶ 4.) Plaintiff also alleges that her “fraud related causes of action arise out of the facts that surround the misrepresentations and concealment of material facts at the time Plaintiff(s) purchased a new motor vehicle.” (Id. at ¶ 3.)

Based on the foregoing, the Court finds that Defendants have met their initial burden to establish the existence of a written agreement that provides for the arbitration of Plaintiff’s asserted claims. However, in order to invoke the arbitration agreement, Defendant must establish a basis allowing it to enforce the agreement as a nonsignatory to the RISC.

B.     Nonsignatory Standing

Here, the agreement is executed solely between Plaintiffs and nonparty Nissan of Mission Hills, located in Los Angeles, CA. Arbitration agreements may generally only be compelled by parties to the agreement. (Code of Civ. Proc. § 1281.2.) Here, Defendant argues that it may nevertheless enforce the arbitration agreement of the RISC under the theories of equitable estoppel and third-party beneficiary standing.

The parties disagree on whether this Court should rule in accordance with Felisilda v. FCA US LLC¿(2020) 53 Cal.App.5th 486, or the recently decided Ochoa v. Ford Motor Company (Apr. 4, 2023, B312261) __ Cal.Rptr.3d __ [2023 WL 2768484]. Both Felisilda and Ochoa discuss a nonsignatory vehicle manufacturer’s right to invoke the arbitration provision of a sales contract entered into between a plaintiff buyer and a nonparty dealership.

In Felisilda, the Third District Court of Appeal found that the plaintiffs’ agreement to the sales contract constituted express consent to arbitrate their claims regarding the vehicle’s condition, even against third parties, as the agreement unambiguously included  “an express extension of arbitration to claims involving third parties that relate to the vehicle's condition.” (53 Cal.App.5th at 498.)

In Ochoa, the Second District Court of Appeal declined to follow Felisilda, and instead found that the nonsignatory manufacturer did not have the right to compel the plaintiffs’ claims to arbitration under either theory of equitable estoppel or third-party beneficiary standing.

Under the doctrine of stare decisis, superior courts are bound by all published decisions of the Court of Appeal, but where there is a split in authority, the superior court may choose which appellate decision to follow. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456.) Here, this Court elects to follow the Second District Court of Appeal’s reasoning in Ochoa, for the reasons set forth below.

Equitable Estoppel

The doctrine of equitable estoppel allows for a nonsignatory party to compel arbitration “when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (Felisilda, 53 Cal.App.5th at 495–496; JSM Tuscany, LLC v. Superior Court¿(2011) 193 Cal.App.4th 1222, 1237; Goldman¿v. KPMG, LLP¿(2009) 173 Cal.App.4th 209, 217–218; Crowley Maritime Corp. v. Boston Old Colony Ins. Co.¿(2008) 158 Cal.App.4th 1061, 1070 [Under equitable estoppel, a party cannot avoid participation in arbitration, where the party received “a¿direct¿benefit under¿the contract containing an arbitration clause…”]; Boucher¿v. Alliance Title Co, Inc.¿(2005) 127 Cal.App.4th 262, 271.)

Here, Defendant argues that equitable estoppel applies because Plaintiff’s claims “are ‘intimately founded in and intertwined with’ the obligations of the Sales Contract giving rise to his [sic] claims.” (Defs.’ Mot. 14:5–9.) The Court notes that the arbitration provision in the instant action is identical to that in Felisilda, which includes a provision extending the scope of the agreement to claims involving third parties. (Ex. C to Do Decl., p. 5.)

Plaintiff, in opposition, seeks to distinguish Felisilda and the number of cases enforcing an arbitration clause by a third party, and characterizes the instant sales contract as a mere financing agreement that is separate and distinct from the manufacturer’s warranties. (Pl.’s Opp. 7:3–14.) Plaintiff further argues that Defendant cannot invoke the arbitration provision of an agreement that Plaintiff does not seek to enforce through the instant action. (Id. at 8:14–15 “the dealership’s contract doesn’t impose any obligations on NNA relating to the condition of the car, in fact NNA has no obligations under the RISC whatsoever.”)

The Ochoa court, in accordance with Plaintiff’s argument, found that equitable estoppel would apply where plaintiffs had sued defendant based on the terms of the sale contract, which was not the case in Ochoa. (2023 WL 2768484 at *4.) The Ochoa court ultimately found that “manufacturer vehicle warranties that accompany the sale of motor vehicles without regard to the terms of the sale contract between the purchaser and the dealer are independent of the sale contract.” (Ibid.)

The Ochoa court proceeded to distinguish Felisilda by reading the “third party” language in the arbitration provision “as a further delineation of the subject matter of claims the purchasers and dealers agreed to arbitrate” rather than the parties’ consent to arbitrate claims with nonsignatories to the agreement. (Id. at *5 [emphasis in original].) Ultimately, the Ochoa court found that the plaintiffs’ claims did not rely on the sales contracts with the dealership, and therefore equitable estoppel did not apply. (Id. at *6.)

Defendant urges the Court to use its discretion to follow Felisilda instead of Ochoa, arguing that “Ochoa relies on cases which predate both the UCC and the Song-Beverly Consumer Warranty Act,” and since the enactment of those laws, “California courts, including the Supreme Court, have consistently recognized that manufacturer express warranties are part of what consumers purchase when entering into sales contracts.” (Def.’s Reply, 2:7–8; 4:10–12.)

Notwithstanding Defendant’s arguments, the Court exercises its discretion to follow the Court of Appeal’s holding in Ochoa, particularly where here, as in Ochoa, “the sale contracts include no warranty, nor any assurance regarding the quality of the vehicle sold, nor any promise of repairs or other remedies in the event problems arise,” and Plaintiff does not otherwise allege any violation of the RISC’s express terms. (Ochoa, 2023 WL 2768484 at *5.)

Based on the foregoing, the Court finds that Plaintiff’s claims against Defendant concern the express manufacturer warranty issued by Defendant, which is independent of and not “intimately founded in and intertwined with” the RISC. Accordingly, equitable estoppel does not apply to allow Defendant to compel arbitration of Plaintiff’s claims.

Third-Party Beneficiary

“A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.” (Civ. Code § 1559.) “Third parties may enforce a contract with an arbitration provision … where they are intended third party beneficiaries or are assigned rights under the contract.” (Cohen v TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 856.)

To show the contracting parties intended to benefit it, a third party must show that, under the express terms of the contract at issue and any other relevant circumstances under which the contract was made, (1) “the third party would in fact benefit from the contract”; (2) “a motivating purpose of the contracting parties was to provide a benefit to the third party”; and (3) permitting the third party to enforce the contract “is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

Here, Defendants argue that “the intent to benefit Nissan is clear from the plain language of the arbitration provision of the Sales Contract. Plaintiff agreed to arbitrate any claim related to the Sales Contract, including ‘[a]ny claim or dispute . . . which arises out of or relates to . . . any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract)’.” (Def.’s Mot. 18:1–4, quoting Ex. C to Do Decl., p. 5.) Defendants argue that they are third-party beneficiaries to the RISC because “Plaintiff’s purchase of his [sic] Rogue, memorialized by the Sales Contract, resulted in a warranty relationship between Nissan and Plaintiff.” (Id. at 18:6–7.)

The Ochoa court discussed the issue of third-party beneficiary standing, and found that “the sale contracts reflect no intention to benefit a vehicle manufacturer under Goonewardene.” (2023 WL 2768484 at *7.) The court further asserted that “if the signatories had intended to benefit [defendant], such a purpose would have been easy to articulate,” and the contract’s reference to “third parties” concerns only “what may be arbitrated, not who may arbitrate.” (Id. at *8 [emphasis in original].)

Here, the Court agrees with Plaintiff that Defendant is not an intended third-party beneficiary of the RISC because the contract specifies that only Plaintiff or the dealership are entitled to compel arbitration of the claims, which “affirmatively disproves any intent to benefit parties not so listed.” (Pl.’s Opp. 11:15–16.) Any assertion that Defendant may “incidentally or remotely” benefit from the contract, without a further showing of the parties’ motivation to provide Defendant with a benefit under the RISC, does not render Defendant a third-party beneficiary of the contract. (Ochoa, 2023 WL 2768484 at *6.)

The Court follows the reasoning set forth in Ochoa, and notes that if the parties intended to benefit Defendant, they could have easily articulated as such in the contract. (Id. at *8.) Here, as in Ochoa, “the parties’ choice of the subject of the disputes they agree to arbitrate does not evince an intention to benefit nonparties so as to affect who is entitled to compel arbitration.” (Ibid.) Here, the contractual language is unambiguous that only Plaintiff or the nonparty dealership may invoke the arbitration agreement. (Ex. C to Do Decl., p. 5.)

Based on the foregoing, the Court finds that Defendant is not an intended third-party beneficiary to the RISC, and therefore cannot compel Plaintiff’s claims to arbitration.

C.    Unconscionability

Unconscionability generally includes the absence of meaningful choice on the part of one of the parties together with contract terms that unreasonably favor the other party. (Carboni v. Arrospide (1991) 2 Cal.App.4th 76, 82-83.) As the party asserting unconscionability, Plaintiff has the burden of proving both procedural and substantive unconscionability. (Crippen v. Central Valley RV Outlet. Inc. (2004) 124 Cal.App.4th 1159, 1165). Courts analyze the unconscionability standard in Civil Code section 1670.5 as invoking elements of procedural and substantive unconscionability. (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1280–1281.)

As the Court finds that Defendant has no basis to compel the arbitration of Plaintiff’s claims in the instant action, it need not reach Plaintiff’s argument that the arbitration provision is unconscionable.

CONCLUSION

The motion is denied.